Garage Sales Not Usually Taxable Businesses
But what about garage sales? Why aren't they taxable? A garage sale is (supposedly) a once-a-year event, and you are selling items you already purchased and for which you have already paid the taxes. Kay Bell, of Don't Mess with Taxes, notes that the IRS says, "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain." Kay explains that a garage sale nets you less than you originally paid, not more.
The second reason a garage sale isn't a taxable business is that it's very temporary; usually a family has only one garage sale a year, for one weekend. If you had a garage sale every other weekend all summer long, your city might come knocking at your door and ask to see your business license.
Flea Market, Farmers Market, and Craft Sale Booths
If you have a booth at a flea market, farmers market or craft sale you are creating or growing something, and you expect to sell it for a profit. And profits are taxable. If you are selling at a flea market booth, for example, you may be selling collectibles you picked up at garage sales for a low price, and you want to sell for a higher price and make a profit (otherwise, why would you bother?). Those profits are taxable.
What Taxes Must a Seasonal Business Pay?
A seasonal business must pay, at minimum:
- Income taxes on profits of the business, depending on your business type
- Sales taxes on sales of taxable items
- Self-employment taxes (social security and Medicare) for yourself as a business owner
- Employment taxes, if you have employees
Income Taxes for Seasonal Businesses
Seasonal businesses like flea market or farmers market booth owners must pay income taxes just like other types of businesses. How your business pays income taxes depends on your business type. If you don't formally adopt another type of business structure, your business is classified as a sole proprietorship and the business taxes are paid through your personal income tax return. The income and expenses of your business are reported on Schedule C, then the net income or loss is carried over onto your Form 1040.
Being a business means you can collect those expenses for making your products and getting them to market to reduce your business income. If you don't file business taxes and claim these expenses as business deductions, they otherwise are not deductible to you on your income taxes.
Many localities charge other taxes, and your state may charge franchise taxes or other types of business taxes. As you start out, keep it simple, but do make sure you pay those taxes. Ask a CPA or tax advisor for help.
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Are Garage Sales Taxable? (from Kay Bell, Don't Mess with Taxes)